SEBI’s New F&O Norms: Impact on Retail Investors

SEBI’s New F&O Trading Norms: Impact on Retail Investors

The Securities and Exchange Board of India (SEBI) has introduced a series of new measures aimed at safeguarding small investors and enhancing market stability. These rules will bring significant changes, especially for retail participants involved in equity derivatives trading.

Key Changes in SEBI’s New Norms:

Reduction in Weekly Expiries: Starting November 20, 2024, SEBI will limit the number of weekly expiries to one per benchmark index per exchange. This aims to curb speculative trading and limit risks associated with naked option selling.

Increase in Contract Sizes: The minimum trading amount for derivatives will increase to ₹15 lakh, ensuring that investors take on appropriate risks. SEBI has indicated plans to adjust the contract value between ₹15 lakh and ₹20 lakh in the future.

Higher Margin Requirements: SEBI will introduce a 2% extreme loss margin (ELM) for all short options on expiry day to protect investors from high market volatility.

Upfront Collection of Premiums: Effective February 1, 2025, brokers will need to collect option premiums upfront, limiting excessive intraday leverage.

Removal of Calendar Spread Benefits: The long-standing practice of calendar spreads will be eliminated for contracts expiring on the same day to reduce speculative trading on expiry days.

Intraday Monitoring of Position Limits: From April 1, 2025, stock exchanges will monitor position limits intraday, preventing traders from exceeding allowable limits unnoticed.

Impact on Retail Investors:

Curbing Speculation: The increase in contract sizes is expected to deter speculative trading among small retail investors who may not be able to absorb larger losses.

Reduced Participation in Options Trading: The reduction in weekly expiries and the removal of calendar spread benefits are likely to decrease retail participation, stabilizing the market by reducing speculative behavior.

Changes in Trading Strategies: Retail investors will need to reassess their strategies to manage margin requirements and adjust for the new rules.

Aakhir Tak Editor-in-Chief

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